Why incentives matter, discussing Obama's policies and the NFL Lockout - FreeEconHelp.com, Learning Economics... Solved!


Why incentives matter, discussing Obama's policies and the NFL Lockout

Economics can explain a lot, it can explain why you got out of bed this morning, to why nations go to war.  Economics explains why the housing and job markets are so bad right now, and why Obama's plans are failing.  But we have to figure out what the incentives are and identify them.


While economics is the science of resource allocation, that is just the motivation.  What you should be interested in is why people and organizations behave the way they do, and that is motivated by incentives.  Every day we are faced with incentives, when our job provides us with free parking, that is an incentive to drive to work.  I work at a University where parking is about $10.00 a day, so I have an incentive to not drive to work, which I don't, I bike.  We have incentives to eat fast food because it is fast and cheap.  We have incentives to be nice to our neighbors so they will be nice back.

A lot going on in the world today can be understood if we
really focus on the incentives.  Because people are rational (most of the time) they are going to respond to the incentives given to them.  Something to keep an eye on now is what Obama is going to do with the economy.  He has a strong incentive to put a lot of government money into the economy so that it looks strong, why?  Because he has an incentive to get reelected.  The republicans also have an incentive to keep policies from coming forward that would heal the economy.  I am not saying the republicans don't want the economy to recover, but they have an incentive to keep Obama's approval ratings down.  These incentives motivate their actions.

Another example is the NFL lockout.  Incentives motivated both the players and the NFL to forgo the season.  While the players will probably be back, and making their money soon, their careers are relatively short.  The NFL on the other hand has the incentive to keep salaries as low as they can.  This is because they will not only have to pay the players more this season, but they will have to continue playing higher salaries into the future.  It is likely in the NFL's best interest to give up one season of profit, because this will be made up in the future through lower salaries.  Because of the players short career span, this is not in their best interest.  So following the incentives, we are likely to see the players give more ground than the NFL.